LO.5 Nathan uses the percentage of completion method to report income from his real estate construction contracts.

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LO.5 Nathan uses the percentage of completion method to report income from his real estate construction contracts. A contract was begun in 2012 and completed in 2013.

In 2012, Nathan reported gross income from the partial completion of the contract. In 2013, however, costs had decreased below the original estimate. The contract was completed with the actual profit on the contract being more than the income from the contract reported in 2012. What mechanism should be used to correct for the underpayment of tax in 2012?

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